The ability to determine risk apportionment in an investment portfolio is fundamental to the development and management of the portfolio. It is well recognized that different investors, depending on both their individual life situations and personal financial goals, need investment portfolios having different risk profiles. For example, an investor having substantial assets and desiring a high-return, long-term investment may look favorably on a portfolio biased towards high-risk investments. Such an investor does not anticipate the need to liquidate investments in the short term and will hence tolerate the volatility associated with high risk investments in light of the ultimately high expected return.
In contrast, an investor facing retirement in a relatively short period of time and facing the necessity of liquidating investments in order to fund that retirement may look more favorably on an investment portfolio biased towards lower risk investments.
The risk profile of an investment portfolio depends upon the determined inherent risk of the investment vehicles and the amount of resource, usually measured in monies, that is invested in the various investment vehicles. It may be perfectly acceptable, for example, to have a moderate or low risk portfolio with one or more high-risk investments, so long as the amount of correlation of risk among investments remains moderate in view of the overall investments.
Risk determinations and hence portfolio profiles are more readily determined where the investment vehicles are publicly traded securities or fixed-income investments. Readily available methodologies exist for determining the amount of an individual investment in such vehicles. Many information sources are available to advise on the risks associated with such vehicles. Thus, it is relatively straight-forward to determine the relative risks and monies invested in such publicly traded vehicles. Portfolio structuring and management can then be performed based on, as discussed above, each individual's personal situation and goals.
It is more difficult to make such determinations for private investments and particularly for complex private investments.
Considering, for example, a simple equity investment in a privately held company, it can be seen that there is no reliable and repeatable methodology or metric for determining the current value of an investment after it is initially made. Valuation of the company for purposes of private funding rounds give some indication as to the transient value of an equity investment at the time of closing of a round. However, this is not a regularly available or reliable metric by which an investor can judge the value of his investment. One reason is that such private funding rounds are relatively few and far apart. They do not account for interim market changes or even regular daily or even hourly market changes that may actually affect the value of the private equity of a company. Further, the valuation for private funding is typically set by a relatively few interested parties, particularly the principals of the company and the investors. This clearly will not produce the rigorous results, as does the scrutiny of the vastly larger number of potential investors in a public market.
As a private investment vehicle becomes more complex, the issues associated with valuing an investment in that vehicle also become more complex. Considering, for example, a private equity fund having multiple investors and multiple investments, the issues associated with valuing an investment in the fund become appreciably more complex. The difficulty of determining the value of investments in complex, private investment vehicles makes it difficult or impossible to accurately analyze the risk profile of an investment portfolio including investments in such vehicles. In fact, not only is value difficult to determine in these situations, but the term “value” itself has well-defined legal meanings that have no readily determined correlation to complex private financial investment vehicles.
It would be useful to have a repeatable, supportable methodology and metric for determining the current amount of an investor's investment in a private investment vehicle at any given time, termed herein the “working money” or amount of money working in any given financial vehicle. Such a metric and methodology would enable a more accurate risk assessment of a portfolio and enable the development of an investment portfolio having a risk profile that meets the needs of the associated investor. Such a metric and methodology would further facilitate decisions such as whether to buy, sell or hold an investment. Such methods, systems and apparatuses are described and claimed herein.